Oil sales intensify due to Covid fears and risk of intervention between the US and China

US crude fell to a fresh low of seven weeks on Friday, settling at $ 76.10 a barrel. The landslide is good news for American drivers who have been hurt by the seven-year-long petrol prices – a crisis that has weakened consumers’ views of the American economy.

“We will definitely see some price relief on gasoline at the pump,” Tom Kloza, president of the Oil Price Information Service, told CNN on Friday, adding that the relief will be “feather-like as opposed to plunges.”

After a relentless increase, the national average gas price has finally flattened out to $ 3.41[ads1] per gallon, according to AAA. It’s about flat from a week ago.

“For the time being, it looks like the 2021 peaks have been established,” Kloza said.

Lockdown jitters

Unfortunately, one of the catalysts for Friday’s fall in the market is another ominous development on the Covid front: Austria announced plans on Friday to introduce a national lockdown, the first in Europe this autumn, in an attempt to reverse an increase in Covid. 19 cases.

The shutdown increases fears in the oil market of tough new health restrictions elsewhere that will slow the economic comeback and erode energy demand.

“Demand signals today are overwhelmingly bearish,” wrote Louise Dickson, senior oil market analyst at Rystad Energy, in a note on Friday. “The risk is real in Europe, especially if Austria’s transition to lockdown has a domino effect across the continent. If Germany follows suit, price levels below $ 80 may have come to stay.”

Will China and America merge?

Beyond the fear of closure, the oil markets are still nervous about the ghost of the US and China joining forces to intervene in the previously glowing energy markets.
Since crashing to minus $ 40 a barrel in April 2020, US crude oil has risen as much as $ 125 a barrel because supply has simply not kept pace with demand. OPEC and its allies, known as OPEC +, have only gradually increased production. American oil companies have also not been in a hurry to add supplies.

A coordinated release from two of the world’s largest energy consumers would have a greater impact than if the Biden administration acted alone to utilize the strategic petroleum reserve.

Officials in China issued a statement on Friday suggesting that a release of barrels from the country’s emergency reserve is on the table.

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“The agency is pushing for emissions-related work for crude oil at the moment,” the authorities, which monitor China’s strategic oil reserves, said in a statement to CNN.

According to a reading published by the White House, US President Joe Biden and Chinese President Xi Jinping discussed during their virtual summit this week “the importance of taking action to address global energy supplies.”

A coordinated release from the US and China can also be used as a negotiating tool to get OPEC + to open the taps, after months of refusing to do so.

“It’s firepower with a concerted effort,” said Robert Yawger, director of energy futures at Mizuho Securities.

“Short-term solution”

Nevertheless, this is not a long-term solution, as the release of barrels from emergency reserves does not solve the underlying supply-demand mismatch. And these emergency reserves contain a limited amount of oil – crude oil that is usually reserved for supply shocks, not increasing demand in the midst of an economic recovery.

Releasing barrels today gives reserves less buffer for the next crisis, whether it is a hurricane, a conflict in the Middle East or another supply shock.

Goldman Sachs reiterated in a new report to clients on Thursday that a coordinated release “will only provide a short-term solution to a structural deficit.”

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The Wall Street bank claimed that this coordinated release is now “fully priced in”, which means that the impact on the markets has already taken place.

“In fact, if such a release is confirmed and manages to keep oil prices down in the context of low trading activity into the end of the year, it will create clear upside risks to our 2022 price forecast,” wrote Goldman Sachs strategists.

In other words, at least some people on Wall Street are already looking past this emergency intervention – before it even happens – and predicting higher prices going forward.

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